MAKERERE UNIVERSITY

COLLEGE OF AGRICULTURAL AND ENVIRONMENTAL SCIENCES

SCHOOL OF AGRICULTURAL SCIENCES

DEPARTMENT OF AGRIBUSINESS AND NATURAL RESOURCE ECONOMICS

PROJECT REPORT ON FACTORS INFLUENCING THE PERFORMANCE OF MICRO

AGRIBUSINESS ENTERPRISES IN CENTRAL DIVISION, KAMPALA DISTRICT

A CASE OF FRUIT VENDORS

BY

REAGAN MULUNGI MWENYI

BACHELOR OF AGRIBUSINESS MANAGEMENT

A RESEARCH REPORT SUBMITTED TO THE DEPARTMENT OF AGRIBUSINESS

AND NATURAL RESOURCE ECONOMICS IN FULFILLMENT OF THE COURSE
REQUIREMENTS FOR THE AWARD OF A BACHELOR’S DEGREE IN
AGRIBUSINESS MANAGEMENT AT MAKERERE UNIVERSITY, COLLEGE OF
AGRICULTURAL AND ENVIRONMENTAL SCIENCES.

SUPERVISOR: DR. GABRIEL ELEPU

AUGUST, 2019

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 LIST OF TABLES
Table 1: Methods of data analysis used...................................................................................14
Table 2: Sex of fruit vendors in Central division, Kampala markets................................................16
Table 3: Age of fruit vendors in Central division, Kampala markets...............................................17
Table 4: Education level of fruit vendors in Central division, Kampala markets.................................17
Table 5: Experience of fruit vendors in Central division, Kampala markets......................................18
Table 6: Number of employees in Central division, Kampala markets.............................................18
Table 7: Major fruit dealt in by each fruit vendor in Central division, Kampala.................................19
Table 8: Credit access by fruit vendors in Central division, Kampala..............................................20
Table 9: Association and group affiliation of fruit vendors in Central division, Kampala......................21
Table 10: Effect of business regulations and policies on fruit vendors’ performance............................22
Table 11: Record-keeping by fruit vendors in Central division, Kampala.........................................23
Table 12: Fruit vendors’ perception of credit access and business performance..................................23
Table 13: Perception of fruit vendors on the effect of business experience on performance...................24
Table 14: Perception of fruit vendors on investment in a newly introduced product............................25
Table 15: Perception of the fruit vendors’ readiness for a competition.............................................25
Table 16: Perception of challenges faced by fruit vendors in business.............................................26
Table 18: Summary of gross margin percentage of fruit vendors....................................................28
Table 19: Factors that significantly affect the performance of fruit vendors in Kampala.......................29

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 LIST OF ABBREVIATIONS
1. MSMEs……………………………………………Micro, Small and Medium Enterprises
2. GDP……………………………………………………………...Gross Domestic Product
3. GEI…………………………………………………….........Global Entrepreneurial Index
4. GEM……………………………………………………...Global Entrepreneurial Monitor
5. SPSS……………………………………………...Statistical Package for Social Scientists
6. MAAIF……………………..........Ministry of Agriculture, Animal Industry and Fisheries
7. UGX……………………………………………………………………..Uganda Shillings
8. CAADP……………...........Comprehensive Africa Agriculture Development Programme
9. FAO…………………………………………………..Food and Agriculture Organization
10. SOAS…………………………………………......School of Oriental and African Studies
11. UMA…………………………………………………Uganda Manufacturers’ Association
12. UIA…………………………………………………………Uganda Investment Authority
13. PML…………………………………………………………………...Post Media Limited
14. LDCs…………………………………………………………...Low Developed Countries
15. ISU-UP…………………………………………...Iowa State University Uganda Program
16. FIEFOC…………………….............Farm Income Enhancement and Forest Conservation
17. UBOS………………………………………………………...Uganda Bureau of Statistics
18. GPM………………………………………………………………......Gross Profit Margin
19. GM…………………………………………………………………………..Gross Margin
20. KCCA…………………………………………………...Kampala Capital City Authority
21. Sig………………………………………………………………………..........Significance
22. n.d………………………………………………………………………………..Not dated

TABLE OF CONTENTS
DECLARATION.............................................................................................................................i
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APPROVAL...................................................................................................................................ii
List of tables..................................................................................................................................iii
LIST OF ABBREVIATIONS.......................................................................................................iv
TABLE OF CONTENTS...............................................................................................................v
INTRODUCTION.........................................................................................................................1
1.1: Background........................................................................................................... 1
1.2: Research Problem................................................................................................... 4
1.3: Objective of the study.............................................................................................. 5
1.4: Hypothesis............................................................................................................ 5
1.5: Significance of the Study.......................................................................................... 5
1.6: Scope of the study................................................................................................... 6
LITERATURE REVIEW..............................................................................................................7
2.1: Business Performance.............................................................................................. 7
2.2: Performance Measurement........................................................................................ 7
2.3: Factors affecting the performance of SMEs in Uganda......................................................9
2.4: Fruit vending in Uganda.......................................................................................... 10
METHODOLOGY......................................................................................................................13
3.1: Research Design................................................................................................... 13
3.2: Research Approach................................................................................................ 13
3.3: Description of the study area.................................................................................... 13
3.4: Description of the population................................................................................... 13
3.5: Sampling strategies................................................................................................ 14
3.6: Method of data collection........................................................................................ 14
RESULTS AND DISCUSSION...................................................................................................16
4.1: Characteristics of fruit vendors in Kampala district........................................................16
4.2: Fruit vendors’ perception of business performance.........................................................23
4.3: Profitability of fruit vendors..................................................................................... 27
4.4: Factors affecting performance (profitability) of fruit vendors............................................28
WORKS CITED..........................................................................................................................31

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 ABSTRACT
There has been a recent spark in the unending discussion about the importance and role played
by Micro Small and Medium Enterprises (MSMEs) in developing countries especially, Uganda.
The need to help them survive, thrive longer and grow in Uganda has risen because of their
tremendous Gross Domestic Product (GDP) contribution of over 20%.

The development of these enterprises would enhance poverty alleviation, create employment
opportunities, increase GDP per capita and get Uganda back to her position of the World’s most
entrepreneurial country based on the Global Entrepreneurial Monitor report in 2017. This thesis
focuses on identifying the most pressing factors affecting the performance of MSMEs and based
on this information, both the public and private sector players would know what to do to improve
this sector.

The findings from the study conducted on a case of fruit vendors in Central Division, Kampala to
represent micro agribusiness enterprises around Uganda indicate that: business experience,
entrepreneurship & risk-taking (measured based on introduction of a new product and readiness
to compete) and record-keeping positively significantly affected the performance of fruit
vendors’ businesses in Central Division, Kampala. This means that a fruit vendor’s ability to take
risks and face uncertainty increased entrepreneurial ability which in turn increased business
performance. Furthermore, the longer a business stayed in operation, the better it performed
because it built social capital and networks which would further result in partnerships and ease of
credit access by fruit vendors (business owners). Finally, keeping records was as well noted to
improve business performance.

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 CHAPTER ONE

INTRODUCTION
1.1: Background

Micro, Small and Medium Enterprises (MSMEs) have been named the backbone of the global
economy as they contribute over 95% of the world’s GDP (Bloem, 2012). However,
economically, developing countries are often referred to as the “missing middle” due to the
failure of MSMEs to provide jobs, innovation and wealth, hence a failure to alleviate poverty
(Bloem, 2012).

Uganda is largely an agrarian economy (Zimbe, 2012) and agriculture remains of great
importance to her development (MAAIF Uganda, 2018) even though over the years, there has
been a decline in agriculture’s contribution to Uganda’s GDP; in 1985, the sector contributed
64.1% and the contribution dropped to about 41.0% in 2001 (FAO, 2001). Over the years, the
sector’s contribution has continued to decline to 24.9% in the financial year 2016/17 though it
remains of great importance to the Ugandan economy, employing over 60% of the total
workforce, 36% of paid employment and provides a variety of profitable investment
opportunities in the agribusiness system, with coffee being the most profitable traditional cash
crop followed by cotton, tea and cocoa (MAAIF Uganda, 2018).

With reference to the declining contribution of the agricultural sector to Uganda’s GDP, The
Daily Monitor Uganda (2010) has impeached the trend on low investment by the government in
the sector resulting in low crop productivity and farmers’ incomes: This, in turn, results in an
increase in the income inequality gap since the largest proportion of the population draw their
livelihood from agriculture. Besides, it’s important to note that, low incomes affect the
government’s plan for Uganda to transition into a middle-income country despite the tremendous
effort. The article goes on to recommend that if the government increases its participation in the
development of the sector, Uganda would be able to attain the goal set by the Comprehensive
Africa Agriculture Development Programme (CAADP) for all its member countries to allocate at
least 10% of their budgets to the agricultural sector hence developing agribusiness by 6% (The
Daily Monitor, 2010).

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However, MAAIF, (2018) stresses that Uganda has been applauded by the CAADP as one of the
top twenty member countries to implement this plan and that’s why there was a notable increase
in Agriculture’s GDP share from 23.7% in 2015/16 to 24.9% in 2016/17. Furthermore, The Daily
Monitor (2010) stresses that if the government could increase investment in agriculture by
developing infrastructure that would increase farmers’ access to markets and agribusiness
extension services hence increased commercialization of agriculture: Uganda’s economic growth
rate would be greater than it is today.

It is important to note that there is a link between agricultural commercialization and

agribusiness (Stanton, 2000). Based on that background, Agribusiness as reported by (King et
al., 2010) stated that Davis was the first person to define the term “Agribusiness” when he
published an article in 1956 named “From Agriculture to Agribusiness” in Harvard Business
Review; he defined the term as, “The sum total of all operations involved in the manufacture and
distribution of farm supplies, production operations on the farm and the storage, processing, and
distribution of farm commodities and items from them.” In a later publication, Davis and
Goldberg in 1957 stated that Agribusiness had to be focused on as a whole; so, the entire food
system was to be viewed as an integrated system. Therefore, any development policies and
initiatives focused on a single part of the system would go in vain since the food system requires
whole attention.

From the above definition, we notice that MSMEs are included in the food system; therefore,
narrowing down to these Enterprises, the University of London’s School of Oriental and African
Studies (SOAS) states that a small agribusiness just like a small enterprise has no specific or
definite definition (Wu, 2009), but tries to define them as, “MSMEs located in rural areas not
only dealing in agricultural produce but also other food-related small enterprises.” At this point,
its left to individual countries to define how small or micro, small is.

Bloem (2012) stated that there are majorly 3 criteria used in defining small businesses, though
each has its limitations: (i) Number of employees which is limited by the fact that many
employees do not reflect business growth since this doesn’t signify efficiency, (ii) Measuring
assets of the business is similarly tricky because there’s no general definition on “what is an
asset?” (iii) Annual sales revenue is perhaps the best indicator but is limited by the hustle to

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attain the information; it’s also important to note that most MSMEs in developing countries like
Uganda do not keep records.

In Uganda, the Uganda Investment Authority defines a micro-enterprise as a business employing

at most four, including the owner and a total sales turnover not exceeding UGX 10 million while
a small enterprise doesn’t exceed 50 employees and sales turnover doesn’t exceed UGX 100
million. On the other hand, a medium scale business employs between 50 and 100 employees
and doesn’t exceed a total sales turnover of UGX 360 million (UIA, n.d).

It was reported that the largest number of MSMEs in Uganda was recorded to be agro-based with
most dealing in agro-processing and value addition and therefore, MAAIF’s claim that
agriculture as of 2018 employs 36% of total paid labor stands to be valid (The Daily Monitor
Uganda, 2014). The report was made based on the Uganda Manufacturers’ Association (UMA)
trade show in Lugogo Showgrounds as most of the small scale manufacturing businesses were
exhibiting agricultural products, adding value to them and manufacturing food items (The Daily
Monitor Uganda, 2014).

In 2016 Uganda was named the world’s most entrepreneurial country: focus was laid on the
percentage of adults who owned or co-owned a business with paid salaries for 3 months but less
than 42 months. Furthermore, entrepreneurial ability to create startups was 28% (The Guardian,
2016). This affirms the article on the most entrepreneurial countries in the world, even when
measured using Global Entrepreneurial Index (GEI), where Uganda was still found to be most
entrepreneurial, with an estimate of 77% of Ugandans below the age of 30, 64% of those
between ages 18 and 30 are unemployed. This has caused resilience among youths who seek
opportunities for survival in a harsh business environment (Rajna, 2015). However, in 2017,
Global Entrepreneurial Monitor (GEM), UK analysis indicated that Uganda lost its most prized
position dropping from the best to 126th with Global Entrepreneurial Index (GEI) of 13.2
(Dhiraj, 2016).

Even though for the last five to seven years, Uganda had been in the list of three of the most
entrepreneurial countries, she has also been recorded to have the most notable business failure
rates, which is attributed to lack of business management skills by the owners (The New Vision,
2010). In addition, article in The Post Media Limited paper emphasized that Ugandans needed to

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understand the importance of MSMEs so that, together, we could support them, since they
constitute 90% of the private sector and provide 2.5 million jobs consequently their contribution
to poverty alleviation and reduction in unemployment (The PML Daily, 2018). Therefore, these
need attention from the public and service-providing sectors to enhance their steady growth and
survival especially by creating a favorable environment for them to access credit for investment
in startups and their growth (The PML Daily, 2018).

Some of the problems experienced by micro agribusinesses are lack of access to finance
(Kinyua, 2014), lack of access to information (Turyahabwe et al., 2013), informality (Kushnir,
2010) and poor management skills & entrepreneurship (Ndinomwene et al., 2015 and The New
Vision, 2010) based on their findings.

1.2: Research Problem

There is still an enormous interest in the limitless roles played by MSMEs in the development of
various economies, resulting in better policies to enhance their performance especially in
developing countries for example; in Uganda they contribute 20% to the GDP, 19.5% to Kenya
and 24.5% to Nigeria’s GDP (Turyahabwe et al., 2013). However, despite their crucial role,
MSMEs still face a problem of high failure rate, such that, only 30% of MSMEs in Uganda get to
their third year of operation as most of them die along the way: a high failure rate that could
largely affect the growth of Uganda’s Economy (The PML Daily, 2018). In the broadest sense,
based on empirical evidence, the major factor affecting the performance of these enterprises is
access to finance (Kinyua, 2014 and Turyahabwe et al., (2013). Turyahabwe et al., (2013) also
emphasizes that hindrance to their performance is based largely on limited information on
financing options, expensive and inadequate supply of utilities and limited access to networks
needed to enhance their competitiveness. It is also a well-known fact that Ugandan Entrepreneurs
have a generally low motivation to expand operations and would prefer to open another business
than expand the scale of the current business (The Guardian, 2016).

At this point, it’s visible that there’s little, “if any”, research that has been done on the factors
affecting the performance of micro agribusiness enterprises in Kampala District with a case on
fruit vending. Poor performance is largely due to low profitability which is a result of other
factors that this study seeks to determine. During this study, fruit vendors in Kampala district

8
local markets was used as a case study to represent other micro-agribusiness Enterprises in
Uganda to create inferences on the findings.

1.3: Objective of the study

This subsection focuses on the overall and specific study objectives that helped to guide the
study.

1.3.1: Overall study objective

To assess the factors affecting the performance of micro agribusiness enterprises in Uganda using
fruit vendors as a case study.

1.3.1: Specific objectives

a) To characterize fruit vendors based on socioeconomic characteristics.

b) To assess fruit vendors’ perceptions of the identified factors that affect agribusiness
performance.
c) To assess the performance of fruit vendors’ businesses based on profitability.
d) To identify the factors affecting profitability (performance) of fruit vending.

1.4: Hypothesis
a) Null hypothesis

Socio-economic factors like access to credit, membership to an association, record keeping,

perception of risk-taking, the existence of regulations and business experience do not
significantly affect the profitability of micro agribusiness enterprises.

b) Alternative hypothesis.
At least one of these factors significantly affects the profitability of micro agribusiness
enterprises.

1.5: Scope of the study

This study on the various factors affecting the performance of micro agribusiness enterprises in
Uganda was carried out in Kampala District’s Central division with a case of fruit vendors in the
Local markets of Nakasero, St. Balikuddembe (Owino) and Wandegeya. The study was
conducted between the months of December and January: A sample of 45 fruit vendors in the 3
major local markets in Kampala’s Central Division was selected randomly and the data was
collected using questionnaires and interview methods.

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CHAPTER TWO

10
 LITERATURE REVIEW
In this chapter, a detailed study of the key aspects of the topic was done with subsection one
explaining business performance based on the views of previous studies followed by subsection
two that gives an insight on the measures of business performance and explains the reason for the
choice of a specific technique. Subsection 3 goes on to explain the general view on the factors
affecting not only micro but also small and medium enterprises’ performance in Uganda and the
world at large based on previous studies made by several scholars. Subsection four narrows
down to the fruit vending sector in Uganda explaining the general overview and its performance.

2.1: Business Performance

Numerous definitions have been put forward to explain the word “Performance.” Despite this,
(Richard et al., 2009) states that very few of the definitions put forward are consistent since it’s
an open question because performance is most common in Management research, such that the
definitions are less justified and therefore are based on assumptions.

For example, Investor Words Corp. (n.d) defines performance as the result of activities of an
organization or investment over a given period of time. As well, Wiktionary (n.d) defines
performance as the amount of work accomplished estimated in terms of time needed, resources
used, etc. Furthermore, Muhanguzi & Kyobe (2014) state that business performance could be
defined as the accomplishments or output of an organization measured against its goals and
objectives.

Finally, (Olutayo et al., 2015) states that several scholars have come to a common definition of
business performance is the “increase in business revenues, sales, profit or market share.”

2.2: Performance Measurement

According to Wu (2009), performance measurement is “the basis for an organization to assess

how well it is progressing towards its predetermined objectives, helps to identify areas of
strength and weakness, and decides on future initiatives, intending to improve organizational
performance.” From this, the role of performance measurement was identified
as being able to determine the current position of the business,

11
communicate the position and plan for the future of the business to improve
its performance over time.

However, its important to note that measuring MSME performance is more complex than
measuring performance of larger businesses (Wu, 2009 and Amason et al., 2006) because little
has been done to inform various small business owners on the different means to determine or
measure performance of their businesses due to the nature and complexity of their businesses.
Interestingly, performance measurement occurs in two dimensions, effectiveness and efficiency
where “Effectiveness refers to the extent to which stakeholder requirements are met, while
efficiency is a measure of how economically the firm’s resources are utilized when providing a
given level of stakeholder satisfaction.” Therefore to attain positive performance, an organization
must ensure that its objective is attained more efficiently and effectively than its competitors
(Wu, 2009). Efficiency of a business can best be measured using profitability ratios like return on
total assets, return on net assets, and return on equity which is important for determining the
financial position of a firm such that low profitability indicates poor performance due to
inefficiency of the business operations (Turyahabwe et al., 2013). Turyahabwe et al., 2013
defined efficiency as a situation in which an organization maximizes benefit and profit while
minimizing effort and expenditure: where he considered efficiency to be in the form of
profitability and growth.

Furthermore, a study on numerous techniques used in measuring small business performance

revealed that; performance can be measured both using financial and non-financial means
(Chong, 2008; Wu, 2009; Richard et al., 2009 and Olutayo et al., 2015). The financial measures
could involve the use of profit before tax (Gross profit), return on investment and turnover while
the non-financial include to mention but a few, the customers’ satisfaction and customers’ referral
rates and waiting time and employees’ turnover (Chong, 2008).

During this study, financial measures of business performance were employed as a means of
micro-agribusiness performance measurement since, over the years, these have been largely used
by small businesses to quantify their performance and therefore inevitably remain the most
reliable, although major aspects of an organization are largely non-financial (Neely, 2002 and
Olutayo et al., 2015). The vast use of the financial technique is because they are objective, easy
to compute and comprehend although they are subject to challenges like being historical and are

12
not available in the public domain (Chong, 2008). Using financial techniques in performance
measurement, involves the computation and interpretation of accounting ratios like Gross profit
margin, return on investment and return on assets (Neely, 2002). In this study, the chosen
measure of profitability to assess fruit vending business in Uganda was Gross margins, which
were compared to determine the performance of fruit vending businesses in Uganda.

2.3: Factors affecting the performance of SMEs in Uganda

Despite the crucial role played by MSMEs in availing employment opportunities, building skill,
being a source of innovative ideas, diversifying the economy and contributing a whole load to
the GDP of most LDCs, they still suffer a problem of high failure rates (Mbugua et al., 2014;
Kinyua, 2014; The PML Daily, 2018 and Turyahabwe et al., 2013).

In the case of Uganda, only 30% of MSMEs make it to the third year as most of them die along
the way: a high failure rate that signifies poor performance of these businesses (The PML Daily,
2018).

The following are some of the factors that have been laid down to explain the performance of
MSMEs; first and foremost, as pointed out by a number of researchers, is the access to finance
(Kinyua, 2014; Mbugua et al., 2014; Ndinomwene et al., 2015 and Atieno, 2009) that affects the
level of profitability of these enterprises. The relationship between performance and access to
finance was largely found to be positive as this affected the level of investment in social and
human capital needed in the production and marketing of goods (Bosma et al., 2002). Access to
finance was also attributed to the age of the enterprise and belonging to an association where
longer serving businesses gain easier access to finances, yet most of these MSMEs have been a
short while in operation. Also, the segmented and incomplete nature of financial markets
increases transaction costs associated with financial services (Atieno, 2009).

The second most pressing factor was management skills and entrepreneurship which argues that
even though most MSMEs have gained access to finance through better lending terms and
reasonable collateral requirements, there is poor management of the little they’ve accessed as
less is re-invested (Kinyua, 2014; Mbugua et al., 2014;Kagame, 2014; Ndinomwene et al.,
2015). The lack of business management skills has mainly been due to a lack of business training
(Ndinomwene et al., 2015).

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Access to marketing information and the application of information technology were also
pointed out and they had a positive relationship with performance (Krishna, et al., 2012).

Besides, there’s also the number of years in operation, where, longer serving firms tend to keep
an easier track of their record, have developed accounting systems and have an established legal
identity as well as having possession of the information required by lenders. Furthermore, the
regulatory environment in which MSMEs operate has an impact on their performance. This
comes in the form of taxation, legal requirements, rights and standards which influence the
operations and profitability of the businesses. Finally, customer, supplier and distributor
relationships were also pointed out as affecting the performance of MSMEs as these relationships
defined the environment in which they operate (Kinyua, 2014).

Whereas most of the above studies have focused on the factors affecting the performance of
MSMEs in general, this study specifically focused on the factors affecting the performance of
micro agribusiness enterprises in Uganda, with a case of fruit vendors in Kampala District.

2.4: Fruit vending in Uganda

Uganda is considered the fruit basket of Africa (Ugandan Convention UK, n.d; Independent
Magazine Uganda, 2017 and Kabiza Wilderness Safaris, 2018) with a variety of tropical fruits
grown and sold in local markets, like a wide variety of bananas, passion fruits, avocado, oranges,
jackfruit, and papaya. For this reason, therefore, it’s considered the tropical fruit basket of Africa
and the reason why Winston Churchill considered it the Pearl of Africa. The fruit variety in
Uganda makes it the one-stop destination for all tropical fruit lovers that would love to have a
taste of Africa. Interestingly, wherever you go in Uganda, you will find fruit stands, wooden
wheelbarrows in town, women in villages carrying a variety of fruit on sale and the markets with
a diversity of fruits including the famous fruits and vegetable market in Uganda, the Nakasero
market. Despite the tropical climate nature, the country has also adapted the growing and selling
of temperate fruits like apples, strawberries, and grapes, grown in South Western Uganda and
sold all over the country and even exported to the EU, Middle East and North Africa (Kabiza
Wilderness Safaris, 2018). The large scale production and exportation of fruits is due to the
presence of warm tropical and cool montane climate as well as rich fertile and well-drained soils
that enhance the growth of both tropical and temperate fruits which are still in the hands of

14
smallholder farmers. Despite the large scale production, there is limited investment in fruit
processing that is limited to mostly juicing and bottling, consequently most of the fruit sold is
fresh (Ugandan Convention UK, n.d).

With the recent trend of a healthy living, Ugandans are picking greater interest in eating fruits
which is the reason why fruit growing has become prominent and street-side fruit vending a one-
stop solution for easier access to those who can’t grow them especially in the urban districts like
Kampala and other densely populated areas (The Daily Monitor, 2017).

The major challenges facing the enterprise include seasonal production of fruits due to high
dependence on nature (Independent Magazine Uganda, 2017), low levels of value addition
(Ugandan Convention UK, n.d), rejection of fruits on international market due to failure to meet
health and safety standards especially in the EU (Radio one FM 90, 2015), limited access to
credit (Ugandan Convention UK, n.d) and failure of government to aid upcoming entrepreneurs
especially through providing financial assistance as promised hence resulting in limited access to
finance to sustain the business in a hostile economic environment (Independent Magazine
Uganda, 2017).

The Ugandan Convention UK (n.d) acknowledges that the government has come to the reality of
most of these challenges and has devised means to solve those that need an urgent solution. For
example the seasonality in supply has been reduced through two projects: (i) Farm Income
Enhancement and Forest Conservation (FIEFOC) Project where government has acquired a loan
for the rehabilitation of the major irrigation schemes (Mobuku, Doho, Agoro and Olweny) and
(ii) The Water for Agricultural Production Project where four other irrigation schemes are to be
rehabilitated (Kiige, Odina, Labori, and Atera) to create a steady supply of fresh fruit on the
market, all year round. Furthermore, larger companies processing fruits have made backward
linkages with small farmers and vendors to widen their supply base for fresh fruits needed by
their businesses as raw materials.

Based on this background, it is evident that there’s little that has been done to improve the fruit
farming and vending sector’s performance. So, this study was focused on finding the major
factors affecting the performance of fruit vending businesses in Uganda and provided possible

15
solutions and recommendations to solve the limitations and improve the performance of the
enterprise.

16
 CHAPTER THREE

METHODOLOGY
This chapter aims at describing the methodologies that were used in data collection and analysis
to fulfill the objectives of the study and to prove both the null and alternative hypotheses of the
study. In section one, the focus will be on research design, section two on research approach,
section three on the description of the study area, section four description of the study
population, section five on the sampling strategies, section six on the methods of data collection
and finally section seven on the methods of data analysis.

3.1: Research Design

The study employed a cross-sectional research design where many aspects were studied at a
single point in time to achieve the objectives of the study. The choice of the research design was
because of its time and money-saving nature.

3.2: Research Approach

The study employed both qualitative and quantitative research approaches to collect data. The
qualitative approach was used to collect data for objectives 1, 2 and 4 and the quantitative
approach was used to collect data for objective 3.

3.3: Description of the study area

The study was carried out in Kampala District, the country’s busiest district with 35% of
businesses in Uganda. The data collected here is representative of Uganda since Kampala
District is located in the Central region which is known for the highest MSME activity in the
country (UBOS, 2003).

3.4: Description of the population

The information was collected from fruit vendors in the 3 major markets of Nakasero, Owino,
and Wandegeya in the Central Division of Kampala. These would have to be operating a business
owned by not more than 5 people at the time of the study to meet the criterion for a micro
agribusiness enterprise in Uganda.

17
Nakasero market was chosen because it has the largest number of fruit vendors in Kampala
District (Kabiza Wilderness Safaris, 2018).

3.5: Sampling strategies

During the study, simple random sampling was employed. 45 respondents were selected
randomly from a large number of fruit vendors to avoid bias due to a large population of the
study. 15 vendors were selected from each of the 3 major markets to total up to the 45 vendors
that were required for the study.

3.6: Method of data collection

The method of data collection was survey and the instrument used was a standard and formal
questionnaire which was pretested on 5 respondents to ensure relevance and comprehensiveness
and determine its reliability in the data collection and analysis process in relation to the
objectives. Each of the objectives was catered for in the questionnaire such that section 1 asked
questions aimed at fulfilling objective 1, and so on. 3.7: Data analysis

The data collected was analyzed in relation to the objectives as follows:

Table 1: Methods of data analysis used

OBJECTIVE DATA ANALYSIS METHOD

1. Demographic traits Descriptive statistics
2. Perception Descriptive statistics
3. Performance Gross margin
4. Factors affecting performance SPSS and Linear Regression analysis

3.7.1: Descriptive statistics involves the use of tables, graphs, and charts to analyze and present
data. This was specifically used to analyze data on demographic traits.

3.7.2: Gross profit margin

Gross profit margin (GPM) is the percentage of gross profit to net sales. It is commonly used to
determine the operational performance of a business (Accounting for Management, n.d). There
are 2 methods used to calculate the Gross profit margin.

 Gross Profit = Net sales- Cost of sales: Cost of sales= Net purchases- Closing stock.
 Gross Profit ratio = [(Gross profit/Total net sales) * 100]

18
In this case, the second method comparing Gross profit and net sales was used such that;

 Gross profit = Total revenue – Total variable costs.

 Total net sales = Total revenue = Unit price (Quantity sold)

Gross profit margin is then represented as a percentage such that a high percentage signifies
better performance of the business.

3.7.3: SPSS (Statistical Package for Social Scientists)

SPSS is also known as Statistical Package for Social Scientists that can be used to run statistical
analysis (SPSS tutorials, n.d) and hypothesis testing. SPSS will be used to draw comparative
tables stating the relationship between every factor stated and the performance of the business as
measured using the Gross profit margin.

CHAPTER FOUR

19
 RESULTS AND DISCUSSION
This chapter seeks to explain the findings of the study and identify the most significant factors
affecting the performance (profitability) of micro-agribusiness enterprises in Uganda, with a case
on fruit vendors. Section one focuses on the characteristics of fruit vendors in Central division,
Kampala, section two looks at the fruit vendors’ perception of business performance, section 3
looks at the profitability of fruit vendors and section 4 looks at factors affecting performance
(profitability) of fruit vendors.

4.1: Characteristics of fruit vendors in Kampala district

A survey of 45 fruit vendors was done and their socio-demographic characteristics were
captured. These include the sex of the respondents, age, education level, business experience
(years) and number of employees per business.

4.1.1: Sex of the fruit vendors

The study revealed that a large proportion of fruit vendors were female who made up 66.7% of
the respondents while 33.3% of the respondents were male. This signifies that there are more
women than men in the fruit vending business in Uganda.

Table 2: Sex of fruit vendors in Central division, Kampala markets

Sex Frequency Percentage (%)

Male 15 33.3
Female 30 66.7
Total 45 100

4.1.2: The age of the fruit vendors

The respondents’ age was categorized in classes of width of 10 as shown in the table below. This
was aimed at simplifying data analysis and the results revealed that 11.1% of the respondents
were in the age category less than 20, 22.2% of the respondents were in category 20-29, 40% of
the respondents were in category 30-39 and 26.7% of them were in the age group 40-49.
Therefore, a third (33.3%) of the respondents were youth while 66.7% of the respondents were
above youthful age. The reason for limited youth participation in fruit vending as an income-
generating business was explained by most respondents that most youths prefer to participate in

20
other income-generating non-agribusinesses like manufacturing, construction and clothes, and
textiles, hence limited youth participation in agriculture and the agribusiness sector (food value
chain).

Table 3: Age of fruit vendors in Central division, Kampala markets

Age Frequency Percentage (%)

< 20 5 11.1
20-29 10 22.2
30-39 18 40.0
40-49 12 26.7
Total 45 100

4.1.3: Education level of fruit vendors

The study revealed that 46.7% of the respondents had ended in secondary school, while 4.4% of
them had no formal education at all, 35.6% of the respondents had had a maximum education up
to the primary level, 2.2% with University education and 11.1% of the respondents with a
tertiary education at Diploma/certificate level. This suggests that fruit vending is a source of
employment for all categories of people, whether educated or non-educated.

Table 4: Education level of fruit vendors in Central division, Kampala markets

Education level of fruit vendors Frequency Percentage (%)

None 2 4.4
Primary 16 35.6
Secondary 21 46.7
University 1 2.2
Tertiary (Diploma/technical) 5 11.1
Total 45 100

4.1.4: Business experience (years)

The number of years spent in business by fruit vendors was categorized in classes of width 5 in
order to simplify analysis and data representation. It was found that one-third of fruit vendors’
businesses had been around for 0-4 years, 31.1% of the businesses were between the ages 5-9,
22.2% of them had been around for 10-14 years and 13.3% of them in the range of 15-19 years

21
of operation. This shows that most fruit vending agribusinesses are young, hence signifying high
failure rates.

Table 5: Experience of fruit vendors in Central division, Kampala markets

Experience of fruit vendors Frequency Percentage (%)

(years)
0-4 15 33.3
5-9 14 31.1
10-14 10 22.2
15-19 6 13.3
Total 45 100

4.1.5: Number of employees

Results showed that a majority (75.6%) of the fruit vendors employed 1-4 persons. Following the
definition of MSMEs given by the Uganda Investments Authority, it shows that a majority of
fruit vendors were micro-businesses as they employed not more than 4 people (UIA, n.d).

Table 6: Number of employees in Central division, Kampala markets

Number of people employed Frequency Percentage (%)

1-4 34 75.6
5-8 10 22.2
>9 1 2.2
Total 45 100

4.1.6: Fruits dealt in by fruit vendors

Results showed that a majority 35.6% of the fruit vendors dealt in mangoes as their major fruit
for sale, 31.1% dealt in avocado, 20% dealt in oranges and 13.3% fruit vendors dealt in
Tangerine.

Table 7: Major fruit dealt in by each fruit vendor in Central division, Kampala

Major fruit dealt in by the Frequency Percentage (%)

individual vendors
Mangoes 16 35.6
Avocado 14 31.1

22
 Oranges 9 20.0
Tangerine 6 13.3
Total 45 100.0

4.1.7: Access to credit

The study revealed that 64.4% of the respondents had access to credit while 35.6% of them had
no access to credit. Of the 35.6% who had no access to credit, 31.2% of them reported that it was
mainly due to the large collateral requirement by lending institutions, 25.0% of them reported
that it was due to short payment period and 25.0% of them reported that it was due to a large
interest rate imposed on borrowed monies, while 18.8% of them reported ignorance of the
financial services provided by formal and semiformal financial institutions. While 69.0% of

23
those that had access to the credit reported that they mainly used it to purchase goods for resale
in their businesses and 20.7% of them used it to pay off bad debts.

Table 8: Credit access by fruit vendors in Central division, Kampala

Access to credit Frequency Percentage (%)

Yes 29 64.4
No 16 35.6
Total 45 100
Reasons for limited access to credit
High interest rates 4 25.0
Ignorance of financial services 3 18.8
Large collateral requirement 5 31.2
Short payment period 4 25.0
Total 16 100
Utilization of credit by fruit vendors
Increased access to working capital to 20 69.0
purchase high-quality fruits
It didn’t help! It was expensive to repay the 3 10.3
loan
Used to pay off bad debts 6 20.7
Total 29 100

4.1.7: Membership to an association and group affiliation

The study revealed that 62.2% of the respondents belonged to some organization while 37.8% of
them were not associated with any organization. About 61% of those that were associated with a
group had just joined it in a month, because most of the fruit vending agribusinesses were newly
created ventures, between 0-4 years old. Of those that were affiliated with an association, 60.7%
reported that the association helped them in marketing their goods hence reduced marketing
costs, safe storage for marketable produce and increased bargaining power for the business
owners.

Table 9: Association and group affiliation of fruit vendors in Central division, Kampala

Membership to an association Frequency Percentage (%)

Yes 28 62.2

24
 No 17 37.8
Total 45 100
Time spent in association
About a month ago 17 60.7
About 3 months ago 6 21.4
About a year ago 3 10.7
About 3 years ago 2 7.1
Total 28 100
How associations help MSMEs improve
performance
Collective marketing hence reduced marketing 17 60.7
costs
Low interest and no collateral loans as 11 39.3
compared to most commercial banks
Total 28 100

4.1.8: Business regulations and policies

A majority (88.9%) of the respondents reported that regulations put on MSMEs affected their
performance while 11.1% reported that regulations set did not affect MSMEs. Of those that
agreed, 37.5% reported that taxation policies set by the Central Government on local businesses
are major impediments to business performance as high taxes increase operating costs of the
businesses compared to the expected profit. While 35.0% of the fruit vendors reported that city
planning rules especially those set by Kampala Capital City Authority (KCCA) to relocate
businesses to centralized locations as well as preventing hawking and street-side vending limited
business performance.

Table 10: Effect of business regulations and policies on fruit vendors’ performance

Effect of business regulations on Frequency Percentage (%)

performance
Yes 40 88.9
No 5 11.1
Total 45 100

25
 Existing regulations that affect MSMEs
most
Taxation policies 15 37.5
City planning rules and policies 14 35.0
Product and safety standards (policies) 11 27.5
Total 40 100.0

4.1.9: Record-keeping and performance tracking

The study revealed that 33.3% of the fruit vendors were keeping records while 66.7% of the
respondents were not keeping records. Of those that kept records, 54.2% reported a positive
relationship between record-keeping and business performance while 45.8% of them reported a
negative relationship between record-keeping and business performance.

Table 11: Recordkeeping by fruit vendors in Central division, Kampala

Keeping records Frequency Percentage (%)

Yes 15 33.3
No 30 66.7
Total 45 100
Effect of record-keeping on performance
Yes 13 54.2
No 11 45.8
Total 24 100.0

On interviewing the 66.7% fruit vendors who didn’t keep records, it was discovered that a
majority 70% felt like record keeping was a waste of time since their businesses still performed
well even without keeping records, while the remaining 30% reported that it was largely due to
their fear to deal with accounting figures and therefore preferred not to keep track of their
business performance.

4.2: Fruit vendors’ perception of business performance

A study was done to assess fruit vendors’ perception of the factors affecting the performance of
their businesses. Results were as follows:
4.2.1: Fruit vendors’ perception of credit access

26
Of the 64.4% fruit vendors that received credit (see table on credit access 4.1.6), 86.2% of them
said it improved the performance of their businesses, 10.3% reported that it didn’t and 3.4% of
them were unsure of the results of using borrowed capital as shown below.
Table 12: Fruit vendors’ perception of credit access and business performance

Perception of the effect of credit access on Frequency Percentage (%)

performance
Yes 25 86.2
No 3 10.3
Not sure 1 3.4
Total 29 100

4.2.2: Fruit vendors’ perception of business experience

It was discovered that 64.4% of the respondents agree that longer serving businesses are better
performers compared to 26.7% of the respondents who reported otherwise while 8.9% of the
respondents showed uncertainty on the effect of business experience on business performance.
Of those who agree that longer serving businesses perform better than their counterparts, 36.7%
suggest that it is because they have strong networks and social capital built over time not only
with employees but also with their customers, 33.3% reported that longer serving business have
easier access to financial services due to their long known reputation, while 30.0% reported
better track of performance because they have better financial management skills.

Table 13: Perception of fruit vendors on the effect of business experience on performance

Perception of better performance of longer

serving businesses Frequency Percentage (%)
Yes 29 64.4
No 12 26.7
Not sure 4 8.9
Total 45 100
Reasons for better performance
Easier access to finance 10 33.3
Network and social capital 11 36.7
Better track of performance 9 30.0
Total 30 100

27
4.2.3: Fruit vendors’ perception of entrepreneurship and risk-taking

In this case, entrepreneurship and risk-taking were measured based on the respondent’s
willingness to invest in a new product or to take on healthy competition in case of a new
competitor in the field.

4.2.3.1: Investment in a new product

New products were considered to come in the form of imported fruits that didn’t initially exist on
the market. Fruit vendors’ perception of investing in a new fruit on the market was used to
determine their willingness to take on risks, hence a measurement of entrepreneurial ability.
Results showed that 53.3% of the respondents were willing to invest in a new product and 42.2%
of them showed an unwillingness to invest in a new product hence a sign of fear to take on risks,
while 4.4% of the fruit vendors showed uncertainty in investing in a new product.

Table 14: Perception of fruit vendors on investment in a newly introduced product

Introduction of a new product Frequency Percentage (%)

Yes 24 53.3
No 19 42.2
Not sure 2 4.4
Total 45 100

4.2.3.2: Readiness for a competition

Fruit vendors’ perception of taking on healthy competition was used to measure their ability to
take risks, hence entrepreneurial ability. The study revealed that 51.1% of the respondents were
ready to take on the challenge of a healthy competition in case a new competitor came on the
scene hence a sign of no fear to take risks, 26.7% of them showed no readiness to take on the
challenge in case a new competitor came up while 22.2% of the respondents were uncertain of
their position on a new competitor on the scene.

Table 15: Perception of the fruit vendors’ readiness for a competition

Ready to compete Frequency Percentage (%)

Yes 23 51.1

28
 No 14 31.1
Not sure 8 17.8
Total 45 100

4.2.4: Perception of challenges faced by fruit vendors in Central division, Kampala

Challenges faced by fruit vendors in Kampala were grouped and categorized in 4 based on their
responses namely: inconsistent supply of high-quality fruits, existence of few buyers, improper
location of the business and lack of customer brand loyalty. Approximately, 47% of the fruit
vendors reported the location of the business as the major challenge faced. They gave an
example of Wandegeya market that is located in an enclosed building where most customers fear
to go in and buy goods from it because they assume it’s only open to the rich. More than a
quarter of the respondents reported there wasn’t consistent and regular supply of high-quality
fruits for resale at an affordable price, 20% of the fruit vendors reported existence of few buyers
who approached their stalls and 6.7% of them reported lack of customer loyalty especially those
that came back again to buy from them as shown in the table.

Table 16: Perception of challenges faced by fruit vendors in the business

Challenges faced Frequency Percentage (%)

Inconsistent supply of high-quality fruits 12 26.7
Existence of few buyers 9 20.0
Improper location of the business 21 46.7
Lack of customer brand loyalty 3 6.7
Total 45 100

4.3: Profitability of fruit vendors

The average gross profit margin received per vendor was calculated as shown in the table below;
this is based on the formula, total revenue less total variable costs of the agribusinesses.

Gross profits of individual fruit vendors have been summarized in a table as shown below. Such
that, 13.3% of the fruit vending businesses earn a gross profit margin of 1-20%, 20% of them in
the range of 21-40%, 40% of the fruit vendors in the range of 41-60% and 26.7% of the fruit
vendors in the range of 61-80%. A total of 33% of the businesses are operating below the average

29
range of (41-60%) and 26.7% of the businesses are operating above the average. Based on this, it
is feasible to conclude that 33% of the businesses are performing poorer than the remaining 67%.

Table 17: Summary of gross margin percentage of fruit vendors

Gross profit margin range (%) Frequency Percentage (%)

1-20 6 13.3
21-40 9 20.0
41-60 18 40.0
61-80 12 26.7
Total 45 100

4.4: Factors affecting performance (profitability) of fruit vendors

During analysis, a log-linear regression was run to determine the factors that significantly affect
the performance of fruit vendors’ businesses.

The regression showed that adjusted R2 was equal to 47.3%, hence the observed change in the
performance based on the identified factors was 47.3% while the remaining percentage could be
explained by other factors. The coefficient of determination (R) had a value of 74.6% which
showed a high degree of correlation. Furthermore, the overall regression model statistically
significantly predicts the outcome variable (because the overall P was equal to 0.00 b which is less
than 0.005).

Results revealed that business experience (years), entrepreneurship & risk-taking (measured
based on the introduction of a new product and readiness to compete) and record-keeping
significantly affected business performance because P is less than or equal to 0.05. Therefore, the
null hypothesis that socio-economic factors like record keeping and entrepreneurship & risk-
taking do not significantly affect the profitability of micro agribusiness enterprises was rejected.

Finally, the study also revealed that other factors such as existence of regulations, access to credit
and membership to an association did not significantly affect business performance, because
P>0.05, hence the model failed to reject the null hypothesis that socio-economic factors like

30
existence of regulations, access to credit and membership to an association do not significantly
affect the profitability of micro agribusiness enterprises.

Table 18: Factors that significantly affect the performance of fruit vendors in Kampala

Standardized Coefficients
BETA t Sig.
(Constant)
10.892 .000
Access to credit
-.104 -.656 .516
Membership to an
-.137 -.905 .371
association
Existence of regulations
.087 .707 .484
Emergence of a new product
-.301 -2.269 .029**
Threat of a new competitor
-.278 -2.040 .048**
Record keeping
.324 2.756 .009**
Business experience (Years) .312 1.985 .050**
R2 Adjusted R2 df Sig N R
7 0.000b 45
0.596 0.520 37 .772a
44
a. Predictors: (Constant), Business experience, Records, Regulations, Product, Competitor, Association, Access to Credit
b. Dependent Variable: log [Gross profit (UGX)]
**
c. statistically significant variables

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